PERE LA: Fees 'still a point of contention'

While some changes have been made, fees and transparency remain an ongoing issue for investors and managers.

At the PERE Global Investor Forum in Los Angeles yesterday, the moderator of the panel session, “The big picture: investor perspective” noted that The Blackstone Group has not changed its fee structures in 20 years. The panelists onstage with him observed that the issue was not just limited to Blackstone.

“There are more fee breaks and more transparency from managers than there had been in the past,” said one investor. “However, it’s still not to the level that many investors are seeking.”

Despite in changes made in favor of investors, the situation over fees and transparency has not vastly improved, he observed.  “It’s still a point of contention when funds are being formed,” he said.

One speaker noted that fee breaks favor larger investors, since typically only the institutions making bigger commitments can receive meaningful discounts. “Generally speaking, fees haven’t changed materially for most LPs,” he said.

Another investor remarked that fees typically are a starting point in talks with managers.  “We want to make sure that the fees are something we can swallow before we proceed any further,” he said.

The investor added that his institution has been more recently been pushing back on certain types of fees, which consequently has created some tension with managers.  “Recently, we’ve had a strong aversion to fees on committed capital, so there’s some headwinds there,” he said.

One panelist urged the investors in the audience to insist that their managers use the Institution for Limited Partners, or ILPA, Fee Reporting Template, which seeks to standardize fee reporting and promote greater fee transparency for fund commitments.

He acknowledged that the template was designed with traditional private equity funds in mind, rather than real estate funds. But while the template is not a perfect fit, “it’s still a step in the right direction,” he said.

“The big picture: investor perspective” panel session was moderated by Steve Fifield of Fifield Realty Partners and featured speakers Jacob Abbott of San Bernadino County Employees’ Retirement System, Jarrod Rapalje of Courtland Partners, Jeffrey Smith of Florida State Board of Administration and Dev Subhash of StepStone Group.